China Seeks to Woo U.S. With Promise of Big Chip Purchases

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The U.S. and China have made little progress so far during trade talks in Beijing. Trade talks remain deadlocked as Beijing refuses to eliminate coerced technology transfers or government subsidies to Chinese companies.

China is counting on promises of big purchases of semiconductors and other U.S. goods to ease trade tensions and persuade President Trump to extend a tariff truce and later resolve the market-rattling dispute directly with Chinese leader Xi Jinping.

During the negotiations this week that were in their fourth day Thursday, U.S. and Chinese officials have remained deadlocked on a number of issues underlying the current trade dispute, according to people with knowledge of the matter. These include Washington’s complaints that China pressures American firms to share technology and uses industrial policies to favor domestic companies at the expense of U.S. competitors.

Having denied those allegations, Chinese officials instead are focusing on ways to boost U.S. exports to China. For instance, China’s top economic-planning agency is proposing to increase U.S. semiconductor sales to China to $200 billion over six years, said U.S. companies briefed on the plan. The sum is about a fivefold increase over current exports.

Chinese negotiators are also offering to eliminate a national vehicle-procurement policy that has given consumers subsidies to buy domestically made new-energy, small-engine and other types of cars, the people with knowledge of the talks said.

These proposals come on top of recent pledges Beijing has made to significantly increase China’s purchases of U.S. farm and energy products, including soybeans, liquefied natural gas and crude oil. Late last month,  in the Oval Office, President Trump, who has campaigned on cutting the bilateral trade deficit, praised the soybean pledge.

Chinese negotiators, led by Vice Premier Liu He, hope that boosting exports will pave the way for a summit between Chinese President Xi and Mr. Trump, who would then try to work out thornier issues, including China’s industrial policies, the people said.

Such an arrangement may fall short for the Trump administration. This week’s negotiations began Monday with lower-level officials. U.S. Trade Representative Robert Lighthizer, who, along with Treasury Secretary Steven Mnuchin, is leading the U.S. side in the high-level talks on Thursday and Friday, is expected to make a recommendation to President Trump about whether to take the deal with Beijing, the people with knowledge of the matter said.

Mr. Lighthizer has been seeking more fundamental changes in the way Beijing runs the economy, such as eliminating coerced technology transfers and government subsidies to domestic companies. The latest Chinese proposals don’t appear to address those structural issues.

Changes to the vehicle-subsidy policy at the national level, for example, may not address similar policies by local governments, hindering sales of imported foreign vehicles in China. Boosting semiconductor purchases may also bolster China’s plans to dominate high-tech industries like aerospace and robotics—policies heavily criticized by the Trump administration.

The continuing trade talks are part of a 90-day truce declared by Messrs. Trump and Xi at their last meeting on Dec. 1. U.S. markets have been rising recently on expectations, fed by Mr. Trump’s comments about progress in the talks, that the U.S. will either reach a limited deal by the March 1 deadline or extend the trade truce.

Such an outcome could open Mr. Trump to criticism from his conservative base—already upset by his willingness to compromise on funding to build a wall on the U.S.-Mexico border. Tariffs on $200 billion of Chinese goods are currently scheduled to rise to 25% from 10% at 12:01 a.m. March 2.

“The President should definitely impose tariffs on March 1,” said former White House strategist Steve Bannon, who works closely with other conservative antifree traders. “Then the Chinese will hear the clock ticking. Trump has them cornered,” he said. “Why lift the pressure?” Mr. Bannon blames Wall Street executives for weakening Mr. Trump’s resolve.

Beijing is pinning its hopes on a presidential summit to solve the trade dispute. During his trip to Washington last month, Vice Premier Liu, Mr. Xi’s economic point-man, extended an invitation to Mr. Trump to meet with the Chinese leader on the tropical island of Hainan.

Mr. Trump and White House officials have said the U.S. leader hopes to meet with Mr. Xi soon, but elsewhere. On Wednesday, White House Press Secretary Sarah Sanders told Fox News that Mr. Trump’s Mar-a-Lago retreat in Palm Beach, Florida, would make a good venue for such a meeting.

Some of China’s plans to increase U.S. purchases could also run into trouble with American business groups and companies. The semiconductor plan would require U.S. companies to rework their supply chains, so that chips are shipped directly to China from the U.S. instead of being routed through countries like Mexico or Malaysia, where many semiconductors are assembled and tested, the companies said. The goods would be counted as U.S. exports, rather than, say, Malaysian exports.

The assembly and testing could also be done in China, and the goods would still be counted as U.S. exports, under the Chinese proposals. The National Development and Reform Commission, the Chinese planning agency that proposed the semiconductor purchases, has said that the cost of remaking the supply chain would be financed by Chinese local governments eager to get more employment and taxes that come with testing-and-assembly facilities.

Beijing is also arguing that its purchase of chips overall would rise, given an expected profusion of electronic products expected to be linked to the internet in coming years. U.S. companies said they wouldn’t be able to meet the demand China is projecting; the U.S. exported $6.1 billion of semiconductors to China in 2017.

So far, U.S. companies have rebuffed the Chinese offer as lacking substance and making them more dependent on China, when they are trying to lessen their dependence. They have urged the U.S. government not to accept the proposal. One U.S. chip maker said it had been lobbied by the U.S. Commerce Department on the merits of the plan.

A senior U.S. administration official said U.S. government agencies were seeking opinions on the Chinese proposal but weren’t advocating for it. The NDRC didn’t immediately respond to a request for comment.

“This semiconductor purchase pledge is a distraction and too clever by a half,” said John Neuffer, chief executive of the Semiconductor Industry Association, a U.S. trade association. He described the offer as an “accounting gimmick designed to help China achieve its Made-in-China 2025 goals.”

Made-in-China 2025 is a 2015 Chinese plan to become dominant in high-technology industries. Chinese officials have said the program is being revised after sustained foreign criticism.

By Lingling Wei
Washington Post

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